The functioning capital cycle (WCC), otherwise called the money change cycle, is the measure of time it takes to transform the net current resources and current liabilities into cash. The more extended this cycle, the more drawn out a business is tying up capital in its functioning capital without procuring a profit from it.
Organizations endeavor to lessen their functioning capital cycle by gathering receivables faster or once in a while extending creditor liabilities. Under specific conditions, limiting working capital may unfavorably influence the organization’s capacity to acknowledge productivity, for example at the point when unexpected climbs sought after surpass inventories, or when a deficit in real money confines the organization’s capacity to gain exchange or creation inputs.
Working capital is the amount a business invests in its regular operations. It also indicates the financial health of the business and measures the company’s efficiency. However, the supply chain is one of the major aspects that need better management of working capital.
Almost every business knows- what is supply chain? But, how do you make the best of your working capital for your supply chain? Working capital optimization is about continuous control of the inventory levels. It is highly reliant on different business circumstances. You need to understand your present business environment to ensure a balance between cost and services.
Managing your working capital in the supply chain
Your supply chain can vary with your customers’ needs. Every customer has different needs, and thus, the service costs will be different. Some common services and customer groups are-
High street deliveries– They entail high services and frequent drops. Thus, you must hold the inventory close to the customer.
For remote customers– The supply chain relates to the high service needs. Thus, the transport trade-offs and inventory must have a balance.
For mass retailers– You need to maintain the reliability and consistency of your service to keep up a low-cost supply chain.
The major aspects of your supply chain to ensure optimal use of the working capital-
- Transport- In most cases, we overlook it, and some businesses think that it is about getting reasonable rates from carriers. But, it is not true.
- Inventory- Make sure that you have properly utilized capital for the inventory.
- Network- It affects your capital needs in relation to inventory and facilities.
- Warehousing- In some cases, it sucks in a high amount of capital. Thus, you must learn the proper management of your warehouse.
Improving Working Capital- Make the right supply chain decisions
Reduce inventory cycles
Although every industry has different inventories, a business needs to control the inventory. You can streamline the manufacturing process to manage your inventory. But, the aggressive reduction of inventory turnover can result in a significant impact on the supply chain.
No one can make accurate forecasts of inventory. Still, it is good to identify the inventory cycle for every commodity. Moreover, you must find ways to ensure earlier clearance of the stock to refine the working capital cycle.
Route planning for better asset utilization
You can use some automated tools to save time for route planning. Master routes will be helpful to serve clients with predictable types of orders. Thus, you can easily manageable the variability. Moreover, the increase in the number of stops per trip will reduce the overall cost. There will be high profitability from the distribution process.
Another important thing is to reduce the distance covered to deliver a particular number of orders. It lowers the overtime hours and eliminates overnight trips. Ultimately, it decreases the number of vehicles needed for transport.
Supply chains for a joint company and the working capital
In some cases, multiple companies have a single supply chain. That is why managing the working capital is a challenge for every company. While one of the companies try to reduce its working capital, it will affect another company’s performance. For instance, it might have pushed the supplier payments for some products. It will cause cash flow issues.
The best solution to the problem is to ensure real-time visibility of information for higher accuracy in forecasts. Moreover, with the fluctuations in the markets, companies need to respond to supply different volumes of products.
To sum up, working capital optimization in your supply chain activities needs attention. Implementation of the right performance metrics is important to reach the goal. Capture data about the supply chain. From inventory to transport activities, everything affects your supply chain.
In order to finance your working capital expenses, you can also approach lenders like Bajaj Finserv that offers unsecured business loan with minimal documents and easy eligibility.
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